Businessweek Archives

Mutiny Is In The Air At America West

November 24, 1991

Top of the News

MUTINY IS IN THE AIR AT AMERICA WEST

Joanne Canfield was thrilled to be hired as a flight attendant for America West Airlines Inc. But just 18 months later, she found herself laid off. Worse yet, as one condition of her employment, Canfield bought 371 shares of AWA stock. By the time she left, the stock was in free-fall -- and AWA was pressing for the $2,797 it had lent her to buy it. With her shares now worth about $ 600, she wishes the airline had "never hired me in the first place."

Canfield and others like her may soon be exacting their revenge. AWA's 13,000 employees hold about 35% of the distressed airline's stock. And as the carrier sinks further into the red, some of those employees are mustering their resolve for an unlikely objective: to topple Chief Executive Michael J. Conway from the job he has held for just two months.

DWINDLING GOODWILL. It's a marked shift in sentiment for employees of AWA, which had depended on the camaraderie of its mostly young and low-paid workers. Most employees want to help keep the airline aloft. But goodwill toward management has been dwindling since AWA's Chapter 11 filing last June. "The majority of employees we've talked to feel Mike Conway is not capable of pulling the company out of Chapter 11," claims Linda Donewald, a former AWA employee and a leader of America West Airlines Employee-Owner Corp.

Conway dismisses the dissidents as "malcontents" who are "shooting from the hip." Says Conway: "This is not Eastern Air Lines, and I'm no Frank Lorenzo. We have no intention of flying this thing into the ground." AWA General Counsel Martin J. Whalen calls the group "a self-generated rump group with an ax to grind." Indeed, another group, the Employee Reorganization Panel, also participates in the bankruptcy proceedings. And its chairman, Bruce Cronin, says "we are completely confident" in current management.

Yet the dissidents can hardly be dismissed out of hand. The head of the equity holders' committee in the bankruptcy proceedings, a pilot and AWA's most senior employee, is listening carefully: "They shouldn't be taken lightly," says Richard Delafield. Also paying attention is Penn Ayer Butler, an attorney for the creditors' committee. "We are fully behind the company," says Butler. "But to say we are fully behind Mike Conway would be stretching it."

Conway, the focus of all the attention, is a financial whiz who hit the airline business in 1980 as controller at Continental Airlines Inc. A year later, he joined AWA. He was instrumental in swinging the financings that let the carrier grow quickly from a tiny operation to a far-flung, $1 billion carrier. But along with growth came onerous debt. As a result, AWA has never been able to put together a string of profitable years. So far this year, AWA has lost $166 million on revenue of $1.1 billion.

SHUFFLING ROUTES. Now, Conway is searching for ways to recapitalize AWA. A six-month grace period for $100 million in deferred payments on jet leases starts expiring on Dec. 1. If it defaults, AWA could be grounded. Then, Northwest Airlines Inc. and GPA Group PLC, which advanced AWA $55 million in bankruptcy financing, could force an asset sale. So, to tide itself over, AWA has been bargaining with Kawasaki Leasing International Inc. for a loan of $23 million.

Even his critics give Conway credit for reducing costs fast by reshuffling routes and cutting 2,200 jobs. The company says those two steps alone will save $100 million annually. It will need the help. Flooded with discount tickets it issued to stoke business earlier in the year, it reported a third-quarter operating loss of $29 million -- some distance from the $9.9 million loss it projected.

That's why dissident employees are looking for a way out. On Oct. 30, the group met with Northwest President John H. Dasburg to voice their displeasure with Conway. They have even taken their case to Arizona Republican Senator John McCain. What worries workers most is that with AWA stock near $1 a share, Conway may be angling for a merger or sale to Northwest or another company. That, says Whalen, "is way the hell premature."

The dissidents say they're mulling whether to ask the bankruptcy court to push Conway out. They'll do it, they say, if the airline doesn't hit the $2.3 million fourth-quarter profit it projected for the bankruptcy court. Even Whalen says that forecast is "probably unrealistic," although he blames AWA's bleak performance on the sluggish economy.

Joanne Canfield knows all about recessions. These days, she distributes the dissidents' newsletter and works the phone to enlist other employees in their cause. Those calls are getting easier with each piece of bad news from AWA.Eric Schine in Phoenix